That is the only way I know how to describe the market action of late. The week is likely to end flat — no losses or gains — but it sure didn't feel that way.
Markets have just lived through 4 consecutive 90% Trading Days. That is a session where 90% of the stocktrading volume and the number of advancers versus decliners is to one sided. These 90% Days are defined by their extreme intensity. They are typically associated with panic selling and on occasion, panic buying.
Four consecutive 90% Days is extremely rare, and according to Lowry's Technical service, this week was "only the second time since 1940 that four consecutive 90% Days have been registered." Floyd Norris of theNYT found 3 instances of consecutive 4+% swings.
And most unusual of all, there is no historical precedent where we had four consecutive 90% Days that saw each reversed in the next trading session, i.e., Down Up Down Up.
The technicians will call this high volatility, but to me, its merely a case of BiPolar behavior. I would note the following five observations:
1) There is no clear trend. Anyone who engages in trend trading is likely out of this whiplash environment. Why guess when you can wait for a better defined trend line?
2) A 1% muddle through economy has been discounted is mostly priced in at a 20% drop in prices; Even a mild recession is mostly in the price. However, a serious recession, where earnings fall 30-40%, has certainly not been reflected in prices yet.
3) Markets have become extremely oversold. Not quite January 2009 levels (which fell further) but at least to Flash Crash levels. A bounce over days or weeks is increasingly probable.
4) The possibility of more eventual selling exists: It unlikely that this is the last of the selling; we have adjusted downward and now await further data about European banks and the US economic slowdown.
5) The downgrade of the US from AAA to AA+ is likely the first domino to fall; look for further downgrades to major European states, and the ECB itself. What matters is not the downgrade but the reaction in the markets.
The question that you must ask yourself: "Are you a trader or an investor?" will determine if you should be playing in shark infested waters. This will likely remain so for years.
Remember: When in doubt stay out. Go to cash and stay in cash. Cash is a position.
Hope is a great falsifier. Let good judgment keep her in check.Derivatives are nothing more than an ability to rob customers by denying them the ability to see, in real time, bid, offer, open interest and size across the entire market. This in turn means that the bank on the other side can take advantage of its customer because the customer is severely disadvantaged.
When the EU tips into full chaos, U.S. Banks will have a real problem with all the sovereign protection they wrote on European countries. Once one bank goes many are very likely to follow.
This is one of the banks' biggest money-makers - and why not? When the customer can't see it's easy to rob him blind!
But it is this very structure, along with allowing banks to mark their assets wherever they wish along with understating provisions and releasing loss reserves far in excess of reason that allows playing with earnings numbers but results in gross overstatements of value - and capitalization.
Ultimately, as the market calls "BS!" on the claimed values, rumor becomes reality as nobody will accept your claim of solvency if you potentially are on the hook to pay them but the market says your book value is half of what you claimed it to be!
Only when we demand that these institutions place an actual dollar of capital behind every unsecured act of lending, no matter how it's conducted (e.g. in derivatives), and that every asset be marked to the market on a daily basis and treated as unsecured if the claim is made that no market price is available will this crap end.
This is NOT about fiat .vs. hard-backed currencies. It has nothing to do with the form of money and everything to do with the issuance of credit against hot air - that is, nothing - where the liability created is real but the asset's value is a myth. MOST REAL ESTATE STILL FALLS INTO THIS CATEGORY. TRY TO GET SOMEBODY TO BUY YOUR HOUSE FOR WHAT YOU THINK IT IS WORTH. YOU MIGHT BE VERY SURPRISED. MOST ARE WORTH FAR LESS THAN OWNERS AND BANKS WANT TO ADMIT AND THIS IS GETTING WORSE NOT BETTER!
Our CONgress and Executive, along with Ben Bernanke, must be held personally accountable for their utter refusal to stop the balance sheet games and false claims of value. This is nothing more than state-sanctioned fraud and our refusal to put a stop to it is now threatening to once again blow our markets and economy straight to Hell.
THIS IS NOT GOING TO GET BETTER UNTIL WE HAVE REAL, CREDIBLE, TOUGH, PRINCIPLED LEADERSHIP. THERE IS NONE ON THE HORIZON, THE 2012 ELECTION WILL BE A BEAUTY CONTEST, WHERE THE MOST POPULAR, NOT THE MOST QUALIFIED, WINS.
The fact that the Market has reached very oversold levels may offer some people hope that an important bottom is near, but history indicates that that would be a false hope. After this kind of decline the best that can be hoped for is that the formation of an important bottom may be just beginning. In those previous periods it took several months for the bottoming process to be completed.
The price decline that generated the recent low is relatively small compared to the the two previous ones, so it is likely that we will see something completely different from what has happened before.
Considering the rapid deterioration of both price and internals, I think that a continuation of the decline to much lower levels is probable. That is to say that we'll probably see support at pervious bear market lows tested before we'll see this year's highs exceeded. YOU SHOULD BE PROTECTING YOUR WEALTH, NOT DEPLOYING IT!The charts below are trying to tell us to be very, very careful over the next few months.
French bank Societe Generale has dropped 61% since late February 2011. The 200-day moving average has rolled over, which increases the odds of bearish outcomes over the next few months. A sharp snap-back rally is also quite possible even if Societe Generale has already entered a bear market. Societe Generale's Relative Strength Index's (RSI) recent trend looks like a bear market, not a bull market (see bottom of chart below). The failure to break into the orange box is a yellow flag for all risk assets. It is not time to panic, but is it a good time to have specific risk management contingency plans in place. Societe Generale could rally all the way back to its 200-day moving average. However, the negative slope of the 200-day tells us a rally may not produce higher highs.
The current chart of the S&P 500 looks a lot like the U.S. Financial Index did in July 2008. You can blame speculators and computerized trading for the recent vertical plunge, but the speculators and trading algorithms properly identified serious structural problems with banks and mortgages in 2008. Have you ever seen speculators successfully attack a sound company? Almost without exception, when markets focus on a company in a negative manner, something is fundamentally wrong with that company. Enron stock began to drop well before the fraud came to light.
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